Last
Friday afternoon, when what few traders were not on vacation were
planning the venue of their evening alcohol consumption, we showed a remarkable analysis by Bank of America, which found that yields on the $27.8 trillion non-USD global
investment grade bond market had declined to just 16bps and that the US
share of global investment grade yields has climbed to 94%. But the
punchline is that, as we said, "non-USD sovereign yields had
dropped to just 2bps, meaning that any day now foreign sovereign debt
may have no yield at all on average."
Fast forward to Monday, when following another surge in global bond
prices, Bank of America refreshed its analysis, and foudn that the
striking trends noted last week had become even more fascinating, to wit
yields on the $27.8tn non-USD global IG fixed income market had
declined to just 11bps (down from 16bps just one day earlier)...
... and the US share of global IG yields climbed to 95%...
... meaning that any foreign investor who is desperate for even the
smallest trace of positive yield has no choice but to come to the US,
something Kyle Bass echoed earlier on CNBC: "US rates are going to zero
because they are the only DM yields with an integer in front of them."
But the biggest shock is that for Albert Edwards, vindication is here
if only outside the US for now: as per the BofA update, non-USD
sovereign yields on $19 trillion in global debt - which was a paltry but
positive +0.02% on Friday - have now turned negative on average for the
first time ever at -3bps.
The silver lining: for now the average US sovereign yield is like a
beacon for foreign investors, offering a "juicy" 1.59% but we fully
expect this number to keep dropping as offshore pension funds rush to
lock in positive yields while they can; naturally any further Fed rate
cuts or "some QE" will only bring the US D-Day that much closer.
It's not just us: commenting on the Japanification of the world, Bank
of America's Hans Mikkelsen wrote that "we continue to think there is a
wall of new money being forced into the global corporate bond market"
and adds that "the trigger is lower interest rate volatility or simply
the passage of time, as a lot of foreign investors are being charged
(negative yields) for being underinvested."
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